Tuition Discounting Is at an All-Time High. What Does That Mean for You?

Finance
Posted By Eliana Osborn on October 15, 2015 at 5:07 pm
Tuition Discounting Is at an All-Time High. What Does That Mean for You?

Before Google, you had to go by the sticker on a car’s window if you wanted to know the price.  The only problem with that? The dealership had all the information, and they could spin numbers however they wanted.  The same is true for tuition.  A college can set their tuition rate, add in fees, and publish the number.  But that amount might be theoretical – something that no one actually pays, or that just a few students accept off the bat.

Today, however, more information means consumers have access to real data about what fees are legitimate – and what others around the country are actually paying.  For higher education, that’s where a concept called the discount tuition rate comes into play.

According to the Association of Governing Boards of Universities and Colleges, “Tuition discounting is the process by which the institution offsets its published tuition price (sticker price) with institutional grant aid for enrolling students. The result is the discount rate, the ratio of total institutional grant aid relative to gross tuition revenues at an institution. At most public and private nonprofit colleges and universities, even full-pay students are subsidized: the sticker price is less than the average cost of educating a student. The difference is made up through a combination of government subsidies and revenues from endowments and other private sources.”

Essentially, the sticker price for a college isn’t the real price that you pay.  However, that number is what federal financial aid dollars are based on, motivating inflated figures.

A study recently released by the National Association of College and University Business Officers (NACUBO) found that tuition discounting has hit an all-time high. Among surveyed schools, the average discount rate was 48% for freshman and almost 42% for all undergrads.  Accordingly, 89% of full time freshman got institutional aid, covering 54% of tuition and fees.

With nearly all students getting aid from schools to reduce their tuition, can it be fair to say that the listed tuition is the real cost of attending a school?  When comparing schools before enrollment, students of course need to look at how much each institution charges.  But figuring out the discount rate – what actual students really pay – is much more difficult to determine.

Why do schools use such a confusing strategy?  One reason is to boost enrollment.  If one college offers you a $10,000 discount on tuition, you might be blinded to the still high cost remaining.  And these number games are challenging for even the most diligent consumer to figure out, let alone high school seniors making their first major financial decisions.

Ken Redd of NACUBO told Inside Higher Ed, “The financial need is still going to be very high, and the competition among schools for students is still going to be very high, so it wouldn’t surprise me, at least for the next couple of years, if we would see this trend continue.”

For colleges spending tuition dollars from one student to discount tuition for another, the math is going to stop working at some point.  For now, students should be alert to the real costs of college attendance for themselves – not just the numbers they see on a website.

Eliana Osborn
Eliana Osborn is an associate English professor at Arizona Western College, with degrees from Brigham Young University and Northern Arizona University. She’s published widely in forums such as The New York Times, the Washington Post, the Christian Science Monitor, and the Chronicle of Higher Education.

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